According to the quarterly report of 2009, the company achieved 595 million yuan in operating income from January to September, down 17.66 percent from the same period last year; operating profit was-4.0883 million yuan, compared with-12.2557 million yuan in the same period last year; net profit attributed to the owner of the parent company was-6.8324 million yuan, compared with-13.2692 million yuan in the same period last year; diluted EPS was-0.04 yuan. Among them, the net profit in the third quarter was-8.558 million yuan, and the diluted EPS was-0.05yuan.
The fall in zinc prices reduced revenue by 17.66 per cent year-on-year. The company is mainly engaged in lead, zinc and other non-ferrous metal mining, zinc smelting, hydropower, etc., of which zinc business income accounts for more than 90%.
In the first three quarters, the company's operating income decreased by 17.66% compared with the same period last year, mainly due to the impact of the financial crisis, the average price of zinc and lead in the Chinese market fell by 25.9% and 31.2% respectively during the reporting period.
Gross profit margin rose 9.79 percentage points compared with the same period last year. During the reporting period, the company's gross profit margin rose 9.79 percentage points year-on-year to 13.13%, mainly due to the continuous decline in zinc prices in the same period last year and the reduction of gross profit margin due to the ice and snow disaster at the beginning of the year. Zinc prices have continued to rise since 2009. As of September 30, LME3 monthly zinc and Yangtze River spot zinc prices have risen by 63.0% and 48.0%, respectively; at the same time, inventory prices at the end of last year are prepared to be resold this year to reduce the cost of the main business. The rise in zinc prices and the preparation for resale of falling inventory prices contributed to a sharp rise in gross profit margin in the first three quarters of 2009 compared with the same period last year. However, gross profit margins in the first three quarters were 18.47%, 14.16% and 10.27%, respectively. Against the backdrop of rising zinc prices and simultaneous increases in processing fees, gross profit margins declined quarter by quarter, as the impact of inventory price rewriting on earnings in each quarter of 2009 gradually weakened.
Futures investments led to a loss in the third quarter. On the basis of the net profit of 1.2654 million yuan and 460200 yuan respectively in the first two quarters, the loss in the third quarter was 8.558 million yuan, resulting in a cumulative loss of 6.8324 million yuan in the first three quarters, mainly due to the loss of futures hedging. Due to the company's cautious judgment of the market trend in the third quarter, the zinc futures hedging business suffered a loss. As of September 30, 2009, the company's zinc futures hedging contract accumulated closing loss of 11.5991 million yuan; position floating loss of 1.3168 million yuan.
Profit forecast. If zinc prices continue to rise or maintain the current price in the fourth quarter, regardless of the profit and loss situation of the futures investment business, the possibility of turning losses or break even for the whole year is still greater. It is predicted that the EPS from 2009 to 2011 will be 0.01,0.15 and 0.21 yuan respectively, maintaining the company's "neutral" rating.
Risk tips: 1) the risk of large fluctuations in zinc prices; 2) the risk that expenses can not be effectively controlled during the period; and 3) the risk of overvaluation.